Fidelity European Trust PLC (FEV) Earnings Call Transcript & Summary

[Audio Gap] In this case, a beautiful moment. All too often, the problem for us as investors is that we can't really enjoy the moment because we're always worrying what comes next and perhaps, even preparing for it as well. So in this presentation, we're going to spend a bit of time enjoying the moment because certainly, last year was a good year. This year-to-date has been a good year, and we've had some good years recently. But we also will do our fair share of worrying about what's coming next and also perhaps even warning you that these good times may not last. So if you are already enjoying the moment, I apologize because now I have to make you read this scary stuff. And I'll give you half a minute or so to do so. Okay. So in the next 30 minutes or so, we will review last year and also the first quarter year-to-date. Then we'll have a quick reminder of the investment approach. I know many of you in the room are familiar with the investment approach, but there are always some new faces and some people listening online. So I think that's a worthwhile thing to do. At that point, I'll pass the baton to Marcel, who will go through a particular example, putting some flesh on the bones. And then Marcel will also look at recent activity in the portfolio and our view of the outlook. Before I get started, I'd just like to remind you of the investment team that are responsible for your company. I believe you know Marcel and I reasonably well, but there are 2 other critical elements of the team that I'd just like to remind you of. First off, Natalie Briggs, who is here today; and Amy Kelly is part of that team, the Investment Directors. And basically, they take charge of anything that is not directly investment related to do with your company. So helping to prepare presentations like this, reports, et cetera. And it's a wonderful resource because it enables Marcel and I to really maximize the time we spend on investment decision-making. Then the other resource that is absolutely critical to us is the in-house research effort. Across pan-Europe, we have about 30, I think it's about 38 analysts, covering pan-European sectors, about 25 of whom we interact with on a very regular basis. And these guys are really the unsung heroes in terms of the performance of your company over the years. Marcel is a very good example of the quality of those analysts. So let's take a look at 2023 and what went on, and also the first quarter of this year. So as I said, 2023 was a good year for markets. You can see that pleasingly, the NAV return, again, very much thanks to the help of the analyst here at Fidelity, was higher than the index. Disappointingly, however, the share price return was below the index and that was because the discount widened during the year, which I think was a phenomenon seen across the sector and many other investment trusts. But nonetheless, it's disappointing. So on the right-hand side of this chart, we have a breakdown of that NAV return of 17.5%. And immediately, you'll say to me, well Sam, you've got index return of 15.7%. Now you're telling me at 17.7%. Well, the 15.7% is in sterling, 17.7% is in local currency, the euros. So then we have to adjust that by the appreciation of sterling relative to the euro over the year of 2% to get back to the index return in sterling terms of 15.7%. Now you'll see from the stock selection, that stock selection was a positive factor during the year, contributing just short of 1% and offsetting the fees taken from the portfolio. But the main contributor to performance last year was gearing. And I think that's interesting because 2 to 3 years ago, you may remember, we -- the Board, in their wisdom, took the decision to lift the amount of gearing to a new fixed level of 10% to 15% going forward on the basis that it's extremely hard to time markets. One of the great advantages of an investment trust in the long run is the ability to gear. And certainly, that was the case last year. So how is the fund done year-to-date? Well, again, it's been a very strong year for the markets to date. It's not really driven by earnings. In fact, in the most recent quarterly earnings reported, earnings are still falling 10% year-on-year. So it's really being driven by a re-rating, I think, in the expectation of interest rates coming down. But as you can see, the index in local currency was up 9.6%. Again, selling has continued to appreciate against the euro by almost 3% year-to-date. This is to the end of the first quarter. Stock selection, again, has been mildly positive. We've had some winners and losers. But again, gearing has been a big benefit, given the rising market. So as you know, markets can be up and down. But I think what is -- what I find amazing is how your company has performed over the last 5 years or so, especially when you consider what has happened in that 5-year period. Despite a global pandemic, despite wars in both Europe and the Middle East, despite interest rates going from 0 and biggest monetary tightening we've seen for a long, long time and despite the cost of living crisis, the share price of your company has very, very nearly doubled over that 5-year period. And I think that's a testament to the underlying strength of companies in Europe and their ability to grow their sales, earnings and cash flows through that period. And obviously, the blue line is both a testament to the stock picking at Fidelity, but also the benefit of gearing over that period of the rising markets. We feel that a lot of the reason that we outperform in the longer term is because of our focus, is because of our focus on attractively valued dividend growers. So what I'd like to do now is just explain a little bit why we focus on dividend growth. And then I'll hand over for a much more exciting bit from Marcel to talk about an example. So really, there are 3 key principles that we have for investing in equities. First up, as you would expect at Fidelity, we're very bottom up. So it's really stock selection that drives the alpha or the performance of the portfolio. In fact, more than that, we actually employ top-down risk controls to make sure that it's not certain factors or stock market environments that will lead to that outperformance, but it is that stock selection. Secondly, we take quite a long-term view. So we're looking for companies that we think can grow their dividends on a 3- to 5-year horizon. Taking a long-term view, we think, is a competitive edge in this time of great noise, but also it has the benefit of reducing transaction costs, which can be quite a drag on the portfolio's performance if they're too high. And finally, we are quite cautious investors. So we spent a lot of time not just analyzing the upside potential in any stocks in which we're invested, but also the downside risk and trying to make sure that the portfolio is well spread across a number of different companies. And finally, as I said before, we do stay fully invested, obviously, in this -- in your company, we employ that fixed level of gearing between 10% to 15% because we do believe that over the long run, markets and equities will rise. So why do we focus on dividend growth? This is really captured on the right-hand side of this slide, this chart, which we reproduced pretty much every year that you've attended this gathering. And what it shows very simply is that companies which have consistently grown their dividends, which are in the blue bars over the various time periods, 1 year, 3 years and 5 years, consistently outperform companies that don't grow their dividends over those same time periods. And I think it's not just staggering how consistently they outperformed, but also the quantum of outperformance. And this chart really shows always the same result. Sometimes over 1 year, you can get the orange bar a bit higher than the blue bar, but it's really quite rare. So that makes it all sound very simple, doesn't it? Just identify which companies will be in that blue bar going forward over the next 3 to 5 years, and you'll be happy. And that's where the hard part comes in. And that's really what Marcel and I spend all our time doing, trying to identify which companies will be able to grow their dividends consistently over the next 3 to 5 years, and then making sure that we're not paying too much for that dividend growth. So how do we do that? Well, that's really captured on the left-hand side of this chart. We have 4 key criteria for investing in companies. The top 3 relate to the ability of the company to grow its dividends consistently on a 3- to 5-year view. First off, positive fundamentals. We're looking for program business models, companies that had a good track record in terms of earnings, cash flows and dividend growth. Generally, we're invested in companies that achieve a good cash flow return on cash invested. We spent a lot of time analyzing to what extent that may fade faster than the market expects. Secondly, we certainly prefer companies that are cash generative. We tend to find that companies with a good track record in terms of cash generation also have a good track record in terms of dividend growth. And finally, we do prefer companies that have a strong balance sheet. Obviously, this slightly depends on the nature of the business model, regulated utility, we would expect to have some financial leverage because its cash flows are very stable. But we certainly don't want to be invested in any companies where a weak balance sheet could jeopardize their ability to grow the dividend in the event of a more difficult period. And then the end is meant to be particularly big, just to say this is not dividend growth at any price. We are very sensitive to valuation, as you can imagine. The analysts at Fidelity have all sorts of ways of evaluating companies. We're quite focused on the trade-off between dividend yield and dividend growth. But at the end of the day, we're looking for companies that we think consistently grow their dividends, where you're not paying too much for that dividend growth.

Excuse me, before you leave that slide. Possibly being thick, but what are the numbers above the blue lines?

Sorry, the numbers above the lines are how many companies have achieved that. So 39 companies have achieved dividend growth consistently each and every year over that 5-year period. Well, we don't necessarily own every 1 of those 39 companies. And I think the interesting observation is that that's really a very small number, which is probably not surprising because during that 5-year period, we had the global pandemic, in which many companies had no sales and therefore, had to adjust dividend policies in which banks were told that they couldn't pay dividends. Also, when French companies were told that, politically speaking, it was not a good idea to grow dividends. So it's quite a small number over that 5-year period, a much larger number over the 3-year period.

So what is the cohort overall? I mean the 39 plus 280, where those...

So basically, the analysis, as it says on the bottom right in very small letters, performed on stocks Europe, 600. And -- but stocks Europe, 600 includes U.K. companies. So we've stripped out all the U.K. companies, which reduced it to quite a small number. And then we also stripped out companies that have been taken over, for instance, so have left the index for some reason or another. So that's what the cohort is. That's why it's less than what you would expect.

[ Hesitant throwing ] to be -- previously that when you were talking about the contribution for stock selection, how do you measure that? Is that taking the companies that have gone up and the companies have gone down and getting a net bigger? How do you measure...

Yes, and measured relative -- that performance relative to the benchmark.

To the benchmark. Okay. Thank you.

Yes. Anyway, I must hand on at this point to Marcel to put a bit of flesh on the bones with an example.

Thank you very much, Sam, and thank you, everybody, for joining. So well, I'll explain a little bit of a recent purchase that we did, which hopefully brings to light the process a bit more with a real example. So the company is Epiroc. And as you can see in the top right-hand corner there, you can get an example of the type of products that they make. They make deep, deep underground mining equipment. So everything from diggers to trucks to whatever it takes to excavate ore and rubble from kilometers underground. And if we run it through our lens, first and foremost, is this a company that has posted fundamentals? Let's start firstly with the industry. Deep underground mining is a fantastic industry for the simple reason that each year, each incremental ounces of whatever it may be, gold, copper, lithium, it's harder to get up the ground than it was last year. If you look at mining into South Africa, we, by now, going kilometers underground to get an ounce of gold, whereas 50, 60 years ago, it was much, much easier. So you have that strong structural growth argument for the industry, which power is kind of a consistent 5% growth or so historically. But then really, over the next 10 years, we think that growth can actually be turbocharged even more because we have the green transition. And we have a situation where the world is ever hungrier for copper, lithium, a whole host of raw materials that are going to be needed to decarbonize and the vast majority of those are coming from deep underground mines. So we think that can add a few extra percentage points on top and mean that the mining -- deep underground mining equipment can grow high single digits. Then what about Epiroc? Is it a good company? Epiroc is a fantastic company. It's part of a duopoly, there are only 2 players in the world, themselves and Sandvik can actually make these products. And that's for 2 reasons. Firstly, massive technological complexity. But equally important, they have a global service network that nobody else can -- that nobody else can touch. So if you think about where these mines are, often deep in jungles or remote areas of Africa, Latin America, Australia -- if will that dig over there goes out of service, stops working, the whole mine can shut down. So to have a service network that's really close on site, in the mine, in remote areas is a competitive advantage that nobody other than 2 players in the world can match. And then Epiroc themselves are developing a really good suite of decarbonated equipment themselves. So in the same way as the auto industry, we're seeing EVs, electric vehicles, et cetera, we're seeing green mining equipment be a big driver, too. Firstly, for the decarbonization agenda. But secondly, if you think about a diesel engine, kilometers underground, you very quickly come to the realization that, that's not great for human safety, productivity, all kinds of issues. So if we can move to a world, not overnight, but over 10, 15 years, where we're using more green equipment underground, it's much better for all involved. So positive fundamentals tick. What about other attributes? Attractive valuation, 2.5% dividend yield. We think that dividend yield should be growing high single digits, if not, double digits in good years. That's a good tick. Cash generative, tick, close to 100% cash conversion. Low levels of debt, strong balance sheet, almost no debt on the balance sheet, meets a key criteria. So all tick, tick, tick, and as a result, we purchased Epiroc recently, and we think the story is just getting started. And everything I mentioned has a nice tenure, if not more, growth horizon ahead of it. With that, I'll talk a little bit about some of our recent activity that we've done. So if you remember, from a year ago, we were -- we had just embarked on a big refresh of the portfolio. Clearing out stocks that over the past few years had let us down on the dividend. So we thought we're going to let down on the dividend, doubling down on our process and bringing 5 or 6 new names into the fund. And you can see around a year ago, that spike in activity, there hasn't been anything as dramatic over the last year, I would say. We bought Epiroc, I touched on. We bought Ryanair, but that's another purchase. But other than that, we've just been doing what we usually do. Stocks that have run, the way the price has kind of moved up materially without necessarily the earnings following, we trim those and we reinvest those proceeds back into the opposite, stocks that have done badly without necessarily having seen big earnings cuts. And in that way, we kind of make sure that we're staying on top of both the risks and rewards. We'd say enjoy the momentum there. Momentum in the finance term means that share prices that go up have continued to gone up. And we've really seen that over the last quarter in particular. The winners have kept on winning. And that's fine as long as the earnings are coming with, but in some instances, the winners have kept on winning without earnings following and we take the prudent approach to trim those. And really double down on what Sam touched on, dividend growth at a reasonable price rather than dividend growth at any price. So let's talk about our outlook. And apologies, we might get a bit gloomy here. There are a number of storm clouds, the European macro horizon. We have inverted yield curve, spoke about a year ago. So let's see if it is actually the predictor that people think. We have geopolitics, doesn't need any further elaboration. Credit conditions tightening. Multiyear refinancings, that's one that I want to spend just a little bit of time because Sam and I spent quite a lot of time thinking about that. So course yourself back, imagine you're a CFO in the depths of COVID, I'm talking June 2020, the world is falling apart, interest rates are 0. What's the logical thing to do is you take as much fixed rate debt as you can, and you lock that in and you say, if I need it, I have it, great. If not, I can pay it back, and nobody has suffered as a result. So it's almost in the same way as homeowners who haven't yet felt the pain of higher rates because they want a fixed rate mortgage. But imagine if all homeowners in June 2020 all went at the same time and fixed their mortgage. So what that means is, if interest rates don't roll over materially by the end of this year, let's say, into next year, we believe that there could be quite a big wall of refinancings due, and it has implications at the macro level for the economy but also at the stock level. So Sam and I have been taking a look at any shares that we own with high levels of debt, even if, as Sam touched on, I might not -- might not kind of put the company at risk, but it could be in -- for a nasty interest surprise. And then lastly, consumer spending peaking. I think that's -- the question mark is for certain parts of the market and other parts of the market. It's pretty clear, consumer spending has peaked. I would say, the question mark is really around the travel leisure experience side where hotels, airlines, et cetera, seem to still be doing well. But nonetheless, I think it's clear that in everything outside of that, we've definitely seen peak spending. And then lastly, the age old European issues are still with us. Poor demographics, high levels of government debt, low productivity. But I'll stop there because I don't want you all to leave in the middle of my European presentation, if I go any further. The "but" is probably arguably maybe the most expensive word in this whole slide deck. European companies are not proxies for European economies. Only 1/3 of the MSCI Europe ex U.K's revenues come from Europe. So think about that, 2/3 of Europe's revenues at the index level come from outside Europe. Countries like the U.S. are almost as important to Europe as Europe is to itself. So we strongly believe European companies are not proxies for European economies. And we can actually dial that even further, so we can be selective and choose even less companies at an aggregate level that are proxies for European economies. And here is the proof in the pudding. I'm a big fan of this slide. I think it's a beautiful slide. If I had my way, this slide would be hanging in the Louvre, but that maybe says more about me than the slide itself. So -- did you see it there? Why do I say it's a beautiful slide. So first and foremost, if you look at the bottom, the index return, that's MSCI Europe ex U.K., 9.2, almost exactly the same as the MSCI world. And think about what's happened over the last 30 years. This is the long-term chart of the history of the Trust. If I asked you what's happened over the last 30 years to the world, you would probably have great things to say. You would say, the S&P 500 and the U.S. has been fantastic. You would tell me about the emergence of India, the emergence of China, you would have all kinds of positive things to say. If I tell you what's happened to Continental Europe over the last 30 years, you probably have a whole bunch of negative things that are at the forefront of your minds. You think about Eurozone crisis, Brexit, there was a Drexit at one point, all these kind of migrant crisis issues, et cetera, all kind of negative things that come to mind. And yet humble Europe has actually kept up pace with the MSCI world over that period. And I think there are 2 reasons for that. Firstly, back to labor on the point. European companies are not proxies for European macro. And secondly, European companies, who've listed some of them there, are actually really good world beaters in and of their own rights. The likes of LVMH, Novo Nordisk going head-to-head, toe-to-toe with the best that the world has to offer. So for us, Europe is not a graveyard market, firstly. And then secondly, if you do your job right, it's actually a fantastic stock picking market. So you can see our NAV return over the long term there has even beaten the mighty S&P 500. So not a stock picking graveyard, not an index graveyard. Actually, we strongly believe, a really good index to outperform historically and hopefully going forward. And with that, I'll leave you just at this last slide. As Sam said, we perhaps should look back and enjoy the moment. It's been 8 years that we've consistently, year in, year out, outperformed the benchmark. But that doesn't mean we're resting on our laurels. There's plenty of issues on the previous 2 slides and the ones before that, they keep us kind of on our toes and keep us alert. But having a look back is sometimes a good moment to enjoy the moment, I suppose. And with that, I will hand over for any questions.

Well, in fact, if I can just interject to thank you, Marcel and also, Sam, before you -- for, I think, what we all agree is a very interesting presentation, which I think it helps to illuminate why Sam and lastly, Marcel, have done so well relative to the benchmark over a considerable number of years. However, as we all know, markets and stocks can fluctuate unpredictably in the short term, irrespective of the longer-term virtues. And therefore, I would just emphasize that even the best managers can be expected from time to have a year of underperformance without it reflecting at all adversely on their talents for what they do. And maybe this is the moment to say that, when we are at such a high point of performance in absolute and relative terms. But thank you both very much.

So the Board and the portfolio managers will now take any questions. And I'd just like to say for those shareholders asking a question remotely, your questions will be put to the meeting by Claire Dwyer, here on my left. And questions of a similar nature will be grouped together to avoid repetition and to ensure that we answer as many questions as possible. For any questions that we are not able to answer today, and looking at you, I'm sure you'll pose some difficult ones, a personal response will be provided in writing after the meeting. So now I would like to take the first question from the floor. And if you have a question, please raise your hand. And when invited to speak, please clearly state your name. And if relevant, the name of the organization you represent before asking your question. And Shantal here, who is a [ tire ] of strength for us all, will bring the microphone to you.

I would like to ask a question about the notice of meeting and voting of shares. I didn't want to interrupt the start of the meeting because of your flows, so good Mr. Chairman. The notice of the meeting is very good because it sets out how to vote and attend this meeting for a wide class of shareholders. And including those attending electronically, although I'm here in person, I think that's a very good thing and I commend the Board for that. I'm only here in person myself as a shareholder, courtesy of Shantal and Customer Relations because those of us who hold our shares on the Fidelity platform but do not have an online account, because we don't want to trade the shares, I've held mine since inception. I know it's [ been plenty ]. I'm able to vote the shares or indeed attend the meeting without support of Fidelity. The issue seems to be that nobody within Fidelity owns the issue that Broadridge, who manage the property vote system, which is the online mechanism for voting, require a control number from Fidelity, and Fidelity will tell you they don't know what a control number is. So my question to the Board is, what practical steps do they think they might be able to take to help resolve this unfortunate situation, particularly in the light of dematerialization, where more shares, certificates of advantage.

That's both a detailed and difficult question, but an important one because we, here on the Board, our absolute priority is to ensure that there is a democracy of involvement, which enables shareholders either to be here or to be online. And anything that acts to frustrate that is a matter of concern to us. Some of these procedures lie outside the immediate control of Fidelity and by extension, the Board as an organization, some within. All I can say at the moment is that we hear what you say and we will specifically review that and seek an answer and hopefully report back when we have the next opportunity to do so to shareholders as a whole as to what we propose or can do to alleviate that situation. But I would assure you that we have heard what you've had to say, and we will look at that.

Andrew Lato. I just wanted to touch on the gearing policy, which I know was mentioned. And 2 aspects of it. I think Marcel said in his presentation that companies, when interest rates were low, should fix debt at very low rates for a long period. As far as I can tell, the Trust didn't do that. Other trusts did do that. It's a complicated financing structure with CFDs, and I'm not even sure what the interest rates on the gearing is. So the obvious question is, is there a particular reason that the gearing wasn't fixed? Looking at the annual reports, the cost of debt has gone up from 800,000 to I think 8.5 million last year, so that's quite high. Just thinking about perhaps when interest rates are low, should the debt have been fixed at a low rate? And then the second aspect is, I understand the policy of having, call it, a fixed level gearing at 10% to 15% free the economic cycle, but perhaps the level of interest rates should also be factored into that. So if interest is at 6% or 7%, surely it makes sense to consider whether gearing should be lower because as I understand, you'd need to get higher rate than that in the portfolio for gearing to add value. So just those 2 questions around the gearing policy.

So I think the observation that I would make is that interest rates have risen and that, as you pointed out, and that with retrospect, maybe it'd be a great idea to take out some gearing whatever, 1.5%, 2% or whatever. There are, of course, significant costs involved in the process of taking out fixed debt, and it's quite an inflexible way of borrowing. So if you want, for whatever reason to cut your gearing long term, then that makes it a rather more involved process to do so subsequently. Additionally, however, and I don't think there are many investment trusts that take advantage of this. We seek to gear by virtue of futures and contracts for difference, which we found to be very cheap ways of achieving a level of gearing that we and the fund managers wish to achieve by any other means. And this has worked very well for us, and it has the advantage that it can be switched on, switched off just like that. Whereas if you take out 30-year gearing, you are rather stuck with it and have to take sort of -- take steps elsewhere on the balance sheet if you want to cut that level of gearing again. Does that, in some way, to answering your question?

Yes. I think so. Your aspect was that if interest rates increase, would it perhaps make sense how low gearing, as you detail a portfolio return above the cost of debt for the gearing to have value.

That's true. So the long-term return on markets is sufficient. And if you can see from that past chart, I don't know if it's still up, the long-term rate of return is still very comfortably above the rate of inflation and in particular, interest rates. There can be circumstances when inflation and interest rates rise to a point that makes that more questionable. But you have to bear in mind that the effect of the underlying inflation will also probably enhance normal returns. So it's reasonable to assume in the long term that, barring individual year or two, that the rate of return on the portfolio and indeed the market will exceed the interest cost that is paid, which probably makes it worthwhile.

And do we have an idea of what the interest cost is for the Euro bond, for the gearing?

I don't have that precise figure to hand. Do we have a figure that -- do we have a figure in mind that...

I don't want to guess at it. So I think that's a post-meeting response.

So we will have to come back to you on that. But if I were to guess, it's going to be somewhere in the sort of mid- to slightly higher than mid-single figure rates at present effectively. But a precise figure, you'll have to wait for -- to get that particular answer. But we will respond when we have the precise answer.

My name is [ Philip Berk ]. I'm a private shareholder. I bought the sentiment because I used to be a foreign correspondent in most European capitals. My question has already been answered, I think, in the very honest and realistic presentation. It caused a stir when I raised it at 2 different investment trust AGMs in the past month, and it was this. I asked whether they knew what happened to the London Stock Exchange on the site of September 1939. I just adapted. Do you know what happened in Paris, Berlin and Milan on those dates? I think you'll get the sense of the question.

So I don't know. My guess is that these markets closed. That's my guess, but you'd have to tell me whether I'm right or wrong. But there may be one of my colleagues who actually knows what's happened on the 3rd of September 1939, well before any of us were born. But we do know, of course, that it was a pretty significant date in terms of the beginning of the second World War. And that's, no doubt, underlies your question along with the effect of potentially difficult geopolitical situations on markets potentially at the moment. It's a process which we're all feeling our way through. But I am reminded of one adage, which I have, I think, over the years, learned to have some respect for, which is that it doesn't bet to pay -- sorry, it doesn't pay to bet on Armageddon. It never seems to arrive. That's not to say it won't, however. So your question, I think, is one which makes us all or should make us all shiver slightly in some part of our anatomy.

My name is Eric Chalker. I recently became an investor in the company. And you're wrong Chairman to say that none of us here were born before the 3rd of September 1939.

You look too young.

I recently became an investor, and I cannot but be very pleased with the performance of the company. I was encouraged to join by a friend of mine who's been a long-term investor, not here today. I read the annual report in particular interest because it was my first. And I saw there's a company called SIG. And I wrote to Mr. Morse a month ago to say that I had just dumped those shares. And I set out in the letter why I had done that. Now I don't know whether you're studying SIG. If you're not, then I, obviously, I'm on the same wavelength. If you are, I'd really like to know what circumstances would cause the company actually to dump a share.

I apologize because I did actually respond to your letter, and you should have received that response by now. So that's something that we should certainly chase up.

But it was a recent letter than they're supposed to dreadful. More than a week ago, then, I'm sorry...

Yes. Okay. We'll definitely chase that up as it was brought to my attention. And actually, in response to the letter, maybe we can clarify here was the company we're invested in is SIG AG based in Switzerland, which is involved in aseptic carton packaging. And I believe that the SIG that you are referring to is SIG PLC, which is a U.K.-based company, in which we're not invested.

So the 2 are not inextricably linked?

No. They simply share the same initials. That is all that links them.

I admire your perception, which distinguishes them. Thank you.

Could I ask you to go back to your slide, the one you -- that one. It is -- sorry, my name is [ Mark Buckshon ]. I'm a member of the company. It is universal for everyone to show arithmetic Y-axis on their graphs. However, statistics can be used to show almost anything, as we know. I really would encourage, when it comes to very long-term trends, that use a logarithmic scale because, I mean, if you look at the left-hand side, and it looks like they're all performing identically. But I suspect that they're not. And if you use a logarithmic scale, we'd actually get a much better view because it looks like there that nothing much happened for quite a lot of years, and then lots happened. But that's not actually true in either case. It may very well be that a logarithmic scale would show you much better. Unfortunately, there may be some regulation that prevents you from doing that. But really, you know, it would be better to do it that way.

First 10 years, where, as you point out, and I think I've said this in previous presentations, where the Trust, as you know, was run by Anthony Bolton. And from '91s to 2001, and it looks like the blue line is only a tiny a bit above the index, but he actually outperformed on average by, I think, more than 4% per annum during that period. Now you'll know that our tenure, we've outperformed, I think, by a little bit more than 2% per annum. So we are very much half the men that Anthony is in terms of investment, but the point...

The demonstration of why this sort of graph actually is extremely misleading.

Your point is very well taken. But the point I would want to make is that the beauty is that we have continued to compound those earnings at a higher rate than the market, and that leads to a very decent results in the long run.

No, that point is very much taken on board. And I think what you winkle out here is probably a distinction between a chart that has been used for marketing purposes and one which the investment managers would have chosen, as I'm sure they're aware of the significance to the point you make. And we will endeavor to show that in a way which reflects in the way that we'll give more long-term information. But we accept that point, no doubt about it.

Richard Dotson, shareholder. 3i, have you sold out? I saw you reduced, maybe as you sold out.

No.

I'll ask the question then.

No. 3i is still a top 10 holding, yes.

It's a private equity company, yes?

Yes.

Based in London. It doesn't necessarily have to trade in Europe at all. And I'm sure we're allowed to hold some non-European stocks, but investment trust as well? I mean, I'm more concerned purely because I have a holding in an investment trust the U.K. mid-caps. And guess what? They own 3i as well, which isn't a mid-cap either. I appeared to have lots of 3i holdings all around the city of London. Although I'm investing in Taiwan and Argentina and such like.

Well, today, you should be very happy because 3i has been a tremendous share.

But it's highly risky. We won one Action.

Yes, Action. I mean, our argument for -- and we are allowed to invest in U.K. listed names. Originally, there was actually a 5% limit in terms of what we could own. But that's now -- that was changed a few years ago such that we can own up to 20% in off benchmark names, including U.K. listed names. But we very much respect the fact that a lot of investors are invested in this fund because they view it as a continental European investment, and they'd like it to stay that way, and we respect that. So we're not turning this into a pan-European fund. The point about 3i Group is that their main investment, as you pointed out, is a discount retailer called Action that doesn't actually do any business in the U.K. ironically. It does all its business in Continental Europe. It was basically started in the Benelux, and it has expanded out into -- very successfully into France and Germany and continues that expansion. And we...

Agreed, but they can sell it tomorrow and buy a Kansas company.

In theory, they could, but that's been true for the last -- ever since they've owned it, which takes you back probably 10, 15 years. So I mean, yes, that is the case. But we struggle to find decent opportunities in the retail sector in Continental Europe. And this is good opportunity to invest in what we think is a very strong long-term growth opportunity in discount retailing in Continental Europe.

One other question. we appear to hold what I would call major companies in Europe, okay, whose a lot of their percentage of their turnover [ struck ] revenue profits come from outside Europe. Do you have specifics for that kind of information? So our company value and revenue, you know all the companies that we hold, how much is generated outside Europe rather than inside Europe?

Here we go. So as I touched on, [indiscernible], Orange bars are the benchmark. So as I mentioned, the benchmark for Europe is around 1/3, although, you can see over there Continental Europe, a little bit above, what's that, 35%. We scale it down a bit more. So we're around 32%, 33%. So we are a little bit more exposed to outside Europe than to Europe relative to the bench, but we're talking tilt rather than betting the farm on that. And then you can see, as I touched on, emerging markets. Obviously, China in there, too, almost as important to Europe as Europe is to itself. And North America, equally, very, very important.

So you actually point out something less into what percentage they do in Europe and what you do outside Europe?

Yes. So this is based on revenue exposure, exactly. So Nestle would not be listed as Switzerland, it would be listed as X percent U.S., X percent emerging markets actually.

So the principle there behind the limit of 20% is not encouraged Sam and Marcel and a European analogy to do sort of a lot of off-piste skiing. It's to ensure that they have the opportunity to invest either in great European companies with interest elsewhere or in companies elsewhere with significant interest in Continental Europe. So the underlying principle of shareholders to gain that exposure to economic activity of a superior kind in Continental Europe is respected.

Does that mean we change the benchmark on a regular basis or not?

Don't change the benchmark. That's the benchmark, and it's that against which -- it must begin...

You continue to hold 20% U.K., should you not, therefore, change the benchmark to represent the U.K. 20%, 80% Europe?

No. Not really because the aim is to ensure that the managers are achieving exposure to Continental Europe, which is what shareholders have signed up to.

And that's the point I started. Yes, I've signed up not 3i necessarily over here. Although I'm very happy you've done that well, but I would hold it elsewhere in other places.

Exactly. And so we respect that. This is how we respect it or try to respect it.

If you look at U.K. over there in the bottom right-hand corner, and you can see, we're marginally above the benchmark, but both the benchmark has less than 5% revenue exposure to the U.K. So it's still a long way away from being a bit overweight.

I'm just going to break off at this point and ask Claire, if we have -- as we may have an online shareholder who's been patiently waiting to ask a question.

So we have shareholders online but we don't have any questions, Chairman.

Okay. We'll take the next question from those present.

Davis, private shareholder. I'm surprised that you haven't got more in direct energy production. And also after the last 2 years that you haven't got more in defense industry.

Sure. I think I can get the defense one, and I'll let Sam to chat about the energy one. So you're right. We don't own any direct defense exposure. So names like [ Ryan Mittal, Hansal, Detalles ], et cetera, but what we do own is indirect exposure through the likes of MTU, which is a German aerospace manufacturer that gets around 15% of their revenues from defense. And the reason for that is we've seen the defense companies become very expensive, what we think is expensive. They've gone up 3, 4 times, particularly the German players, who we agree will probably benefit the most, but multiple legs up relative to where earnings are expected to go. And that may be right. There may be a multi, there may be a decade long increase in the German defense budget and maybe the same in other European countries, but they're already priced in our opinion, accordingly for that. Whereas the likes of MTU, we really like the story in terms of general aerospace cycle. And you almost get the defense business, which is not insignificant for free or under the radar. And I have relatively strong conviction that the German defense budget is probably going to grow more than any European countries, defense budget over the next 5 years, and MTU being German manufacturer is really well placed to benefit from that.

In energy, we have one holding, TotalEnergies, which is top 10 holding for us. We like the long-term track record in terms of dividends and dividend growth. It was, I think, almost the only European oil integrated company that didn't cut their dividend in the last down cycle for oil prices, and they pay a lot of attention to that going forward. So they've got a good long-term track record in terms of capital allocation, which I think is probably the most crucial thing to keep your eye on in terms of these large integrated companies. So it's got a decent balance sheet. I mean, obviously, oil prices, up and down, et cetera, but given that it's very large and very diversified, that also gives it a safety element, which we like it. It's quite defensive in more difficult markets and more difficult times for the oil price.

Just one other thing about the -- just what's on your list of investments. On the top 10 investments, you've got sort of generally what they do. And on the rest, you haven't got anything. And also, I'd like to see what their basic sort of nationality is, which you haven't written on it -- on the rest. You haven't got it on the top 10 that we probably know. But on the rest, you haven't concerned what the basic nationality is? All there are sort of basic business.

So I think it's a really interesting point. It's really a question of space and how much we can squeeze it. We're very mindful of who's got longer and longer every year. But it is a -- we'll have a think about it.

So we'll just take these 2 questions. I think you actually, you've already asked one. We both already asked one. So we'll go in that order, those 2 questions. And then if I may, I will bring the meeting to a close so that you can lubricate your consorts and have a little substance.

Just for the portfolio managers, everyone seems to want to pigeon themselves now as a value investor or a growth investor, a quality investor. It seems to me that the Trust is kind of -- doesn't -- it's kind of a combination of all these things. Hermes is very expensive. You've got less expensive companies like Nestle, which are perhaps quality but slower growing. ASML is probably a growth company. Is it fair to say you're not really any of these stores, you're just kind of a mixture of things?

Yes. I think that is fair. I mean our focus is on dividends and dividend growth. And I think if you were to summarize it in one line, it will be dividend growth, hopefully, at least a reasonable price, if not an attractive price. But we're not too dogmatic. We tend to be quite pragmatic in terms of our approach. We don't like to sort of exclude too many stocks in terms of what we can invest in. We do tend to exclude companies that don't pay a dividend at all, which I think, obviously, you might miss out on some very big winners, but I think you also missed out on a lot of stocks that go to 0. So it probably reduces the overall risk profile of the fund. But I mean, I've always felt, and I think Marcel would agree, the value, real value is a function of both price and quality. Like when you walk into the supermarket and you compare all the pork and beans tins, you might get one that has a tiny slither of pork in it and lots of beans, and then another that's got lots of nice chunky bits of pork in it and a decent helping of beans, and then you compare the prices. And you try to decide that trade-off between price and quality, and that's what gives you value. So yes, I mean, we don't like to be pigeon holed as one or the other. I would say that consultants tend to say we're more growthy than value, but it's more of a tilt. It's not certainly an aggressive growth angle. And a lot of our peers, I guess, probably grew up during the time when interest rates were very low, tend to be a little bit more long-duration growth perhaps than we are, partly because I started doing this in the '80s and the '90s, where having an eye on value was very important as well. So yes, we do try to be a bit of a mix of both.

So this is our last question.

I thought you need a question asked to yourself, Chairman. Articles of Association -- the Articles of Association, do we get a vote on those at an AGM? Or do they just happen?

Articles of Association, I think if they -- they are approved, they're approved when the company comes into [indiscernible]. And then at any stage they change, then there is a vote to -- for shareholders to approve them.

I noticed in your report, you are financed to retirement in about a year's time. Yes? You also -- you earned 48,000 a year. The Articles of Association limit to the maximum you can be paid is 50,000 a year. The gentleman on your right is being tasked with finding a replacement. Is that replacement going to be, what's the word, beswitched in his -- or his or her choice, I mean by the possible salary or should you have actually asked us to agree to the Articles of Association amendments.

What I think we probably will need to do in the coming year...

I'm happy not to.

We haven't had to yet. You're probably very happy not to. And obviously, as far as remuneration is concerned, we need to make sure that we are up with events because we need to be able to recruit good people to come and join the Board. In terms of the surveys that we look at, we tend to come out around about median. So we aren't exactly sort of...

I asked the question quite often. Who do you compare yourself with? Other Fidelity companies?

We compare ourselves with basically everyone. So there's one comparison with other Fidelity companies. There's one comparison with the investment trust universe. There is one comparison with the more directly related investment trust universe. So excluding, for example, companies registered in [ New Jersey ] that tend to have their own strange practices usually up there, and investment trusts that are -- or investment companies that aren't so much like the traditional investment trust that we are.

Will that information be made available to the shareholders?

Which information?

All these comparisons. It's certain...

We don't publish it. We don't publish it. We don't have any plans to publish it. But if we hear [indiscernible] voices telling us that we should, maybe we would consider doing so. But it's part of the practice of obviously assessing and then justifying on a regular basis, the remuneration which is paid to the Board. And of course, we have -- one of the resolutions is to approve the remuneration. And then once every, I think it's -- is it 2 years or 3 years? Every 3 years. Every 3 years, we set out the policy of remuneration, which again, we ask shareholders to approve.

And you would be able to see all of those numbers in the annual reports of those companies, if you're interested. So each of the Fidelity investment companies has remuneration details in its annual reports. And it's true across the whole sector. So you could look it up today. It's all publicly available. Yes. I appreciate that.

I mean, the good old days, [indiscernible] The ladies on the left-hand side, I've looked them up to see where else there are Directors see if they're being underpaid on this one or overpaid on the other. But it's interesting all basically do the same job. It was effective for the value of the investment trust, where it's 100,000 or 100 million. It's exactly the same job you look after our interest hopefully.

Absolutely. Have we answered your question?

I was going to make sure that the gentlemen can recruit the best person.

Maybe a shareholder will step forward.

So on that interesting and even amusing note, I will just proceed to the rest of what needs to be covered. So we've had our last question. In fact, we never had a first one online. We've checked if there are any more questions in the room as well. And grateful, indeed, for your questions, which, as I anticipated, have made us think. The formal business, therefore, is now concluded, and the poll is, therefore, going to be closed any moment by the end of about the next sentence. And for those of you in the room, your poll cards have now been, in fact, will now be collected since, I think I see 1 or 2 still being waved in the air. So we will collect those. And that, as we collect the poll cards, concludes the formal business of this Annual General Meeting. So the proxy votes submitted in advance will shortly be shown on the screen and are available from the Company Secretary. Those are substantially but not absolutely completely for final voting results, which will be posted on our website as soon as possible after being scrutinized by Link Group, our registrar. So it only remains for me to thank you for attending today's AGM and for your continued support. May I invite you to join the Board and the Fidelity team for some refreshments. And if you find any beans, I hope there's a lot of pork in it for those who eat pork. Thank you.